How much will I pay in federal estate taxes?

September 13, 2019
estate tax issues

On behalf of John J. Pembroke & Associates LLC posted in estate tax issues on Monday, December 11, 2017.

Not too long ago, there existed the risk that much of your loved one’s estate would get eaten up by the federal “death tax.” However, large exemptions currently exist that protect the vast majority of estates from paying federal estate taxes. Let’s take a closer look at this exemption to determine how much — if anything — your estate may need to pay after you die.

The current federal estate tax, or “death tax,” exemption is set at $5.49 million. That means, if your estate is less than $5.49 million, the entirety of your estate will be exempt from federal estate taxes. Most estates will therefore be exempt from the federal estate tax.

However, for households with estate values of several million, it could be appropriate to consider estate tax planning strategies. Depending on the economy, your investments and the value of your real estate property, it’s possible that you underestimated the value of your estate. It’s also possible that the value of your estate could rise and fall as a result of market forces. Given these variables, a $4 million estate could rise to $5 million in no time. Once the estate tax triggers, rates of up to 40 percent could apply to the excess amount above $5.49 million.

If you’re one of the few who has a large estate that could exceed the threshold, don’t worry just yet. Many estate planning solutions are available to help you lower the estate taxes that could apply to your estate one day. Legal foresight and planning ahead will be key to your success with these plans. This is why estate planning lawyers often say that the best time to plan your estate is yesterday.

Source: NerdWallet, “Find Out If You’ll Owe Taxes on an Inheritance,” Tina Orem, accessed Dec. 08, 2017

Doing it Alone

It doesn’t matter whether you’re filing as an individual or as a business, filing your taxes is a complex process. It’s for this reason that we recommend you hire a tax specialist of some kind. One of the biggest mistakes small businesses make with taxes is doing it alone and not utilizing the services of a professional tax attorney or CPA.

An experienced tax professional can help you keep your tax matters organized, ensuring that you’re withholding the proper amount of taxes, taking and optimizing the right deductions, and doing everything in a legally appropriate manner.

Making All Employees Independent Contractors

Many small businesses will attempt to reduce their tax burden by classifying their full-time employees as independent contractors. If you’re doing this, you could be making a huge mistake that could come back to bite you in the future.

Misclassifying your employees is illegal, and very often leads to IRS audits. Make sure to classify your employees properly if you want to avoid potentially huge tax penalties. We’ve handled many IRS audits on this subject and can help prevent such an audit.

Not Deducting Enough Expenses

One of the most common mistakes small businesses make when filing taxes is not deducting enough of their expenses. This often happens because these businesses are not sure if they are legally allowed to deduct certain expenses. In fear of being audited, they forego a great deal of money that they shouldn’t be losing out on. Remember, the chances of losing a deduction are 100% of they are never claimed.

Does your business need help determining what should and shouldn’t be deducted on its tax return? An experienced tax attorney can help.

Failing to Keep Tax Records

As a business owner, it is absolutely vital that you keep detailed records of every transaction your business makes. This is important for a few different reasons. Not only does it help you to maximize your tax deductions, it proves the legitimacy of those deductions, helping you fight the IRS in case of an audit.

You should be saving invoices, receipts, and any other document that notes a transaction. These days, it’s wise to save these documents in some type of accounting software.

Choosing the Wrong Business Designation

One last tax mistake that is commonly made by small businesses is choosing the wrong business entity. There are a number of different business entities available, all of which have a different effect on how your business will handle its taxes.

For example, whereas some businesses benefit more from designating themselves as a Limited Liability Company (LLC), others may benefit more from designating themselves as a Subchapter S Corporation.

If you need help choosing the right designation for your business, you should speak with a tax attorney. He or she will be able to help you choose the entity and/or business structure that most reduces your tax burden while meeting your other business needs.

Work with a Mount Prospect Tax Attorney

Are you a small business owner? Do you need help handling your taxes? Interested in working with a reputable Mount Prospect tax attorney? The skilled attorneys at John J. Pembroke & Associates are the people to see.

We have worked with a variety of small business owners throughout the Mount Prospect area, ensuring that they always make wise tax decisions. We would love to work with you as well.